Share This Story!

Toyota to pay $1.2B to settle criminal probe

The Justice Department is expected to announce Wednesday that Toyota will pay one of the largest penalties ever imposed against an automaker to settle a criminal probe of its handling of reports of unintended acceleration in its vehicles.

WASHINGTON — The Justice Department announced on Wednesday that Toyota will pay a $1.2 billion penalty to settle the criminal probe into its handling of unintended acceleration problems that led to recalls of 8.1 million vehicles beginning in 2009.

Attorney General Eric Holder called the settlement the largest U.S. criminal penalty ever imposed on a car company.

"Today, we can say for certain that Toyota intentionally concealed information and misled the public about the safety issues behind these recalls," Holder said. "Put simply, Toyota's conduct was shameful."

Christopher Reynolds, chief legal officer, Toyota Motor North America, said in a statement, "Entering this agreement, while difficult, is a major step toward putting this unfortunate chapter behind us. We remain extremely grateful to our customers who have continued to stand by Toyota."

The settlement calls for eventual dismissal of the case in exchange for Toyota's payment and continued cooperation. The deal also calls for a monitor to oversee Toyota's safety communications, its internal handling of accident reports and its processes for handling technical bulletins.

Toyota says it will record $1.2 billion in after-tax charges in the fiscal year ending March 31. The agreement specifies that the penalty is not tax-deductible.

Some safety watchdogs were impressed. The settlement "is a game changer," said Clarence Ditlow of the Center for Auto Safety. "Until today, automakers faced insignificant fines and no criminal penalties under the Vehicle Safety Act."

The federal criminal probe — spearheaded by the U.S. Attorney's office and FBI in New York — was independent of federal safety regulator and congressional probes of the Toyota sudden-acceleration recalls. It looked at whether Toyota provided false or incomplete statements to the National Highway Traffic Safety Administration in the events leading to recalls for floor mats that could trap gas pedals and gas pedals that could stick.

"While the (criminal probe) price tag represents a costly resolution, Toyota can put this issue behind it to fully focus on current and future challenges in a highly competitive market," says Karl Brauer, senior analyst for Kelley Blue Book, in a statement.

Toyota already paid two federal fines of $16.375 million in 2010 for delays in reporting the floor mat and pedal defects, and another $17.35 million in 2012 related to an additional mat recall.

The criminal probe chronology shows that the problems were discussed within the company for some time without regulatory reporting. The chain of events that led to the recalls began with a rash of "runaway car" reports that followed a dramatic crash near San Diego in August 2009.

Four of the five deaths linked to the acceleration recalls came in that crash. An off-duty California Highway Patrol officer and three passengers were in a Lexus ES dealer loaner car in which an incorrect floor mat from another vehicle trapped the accelerator. The occupants' ordeal as the driver fought to slow the car was captured on 911 recordings before the vehicle eventually launched into an embankment while traveling at least 113 mph.

In addition to issues with floor mats and sticky pedals, some safety experts alleged that problems with the vehicles' engine electronics also were at fault. A federal investigation found no evidence of that, but some remain unsatisfied.

"The cover-up is still there on the electronics issue," says Sean Kane, an auto safety expert for Safety Research and Strategies. "This (government penalty) sends an important message, but it's a mixed message."

On one hand, he says, automakers are being told to be more diligent on safety issues and reporting, or face severe fines. On the other, he says, federal investigators did not push engineering analyses hard enough to find the root cause of sudden acceleration.

Reynolds said in his statement, however, that Toyota has retooled itself after the recalls. "We have made fundamental changes across our global operations to become a more responsive company — listening better to our customers' needs and proactively taking action to serve them."

In addition to the multiple investigations, Toyota was deluged with lawsuits following the recalls. Late last year, it agreed to pay more than $1 billion to resolve hundreds of claims from owners who said their vehicles lost value as a result of the recalls.

Toyota also faces ongoing wrongful death and injury lawsuits that have been consolidated in California state and federal courts. In December, Toyota filed court documents saying it is in settlement talks on nearly 400 U.S. lawsuits, a total that includes most but not all of the cases.

The criminal agreement settles a big part of the remaining recall fallout for Toyota, but is an ominous sign for General Motors, which is just beginning to work through its ignition switch recalls for a problem it now says was known inside the company for more than a decade.

GM last month recalled 1.62 million vehicles worldwide for a faulty ignition switch that can inadvertently shut off the engine and cut power to safety systems. The issue is linked so far with 12 deaths and 31 accidents.

GM already faces a similar criminal probe, as well as NHTSA and congressional investigations. Also, a lawsuit over diminished value of the vehicles has been filed, and lawsuits over deaths and injuries in crashes are likely.

Toyota Group Vice President Bob Carter is surrounded by the media after introducing the 2011 Toyota Avalon at the 2010 Chicago Auto Show. Most of the questions were about Toyota's recall issues
Jim Prisching AP

Tony Raasch, 30, stands with a Toyota Corolla that was involved in an accident in this 2010 file photo from Hales Corners, Wis. He says his gas pedal stuck when he tried to brake to avoid another car.
Carrie Antlfinger AP

Television cameramen look on as a 2008 Toyota Prius' brakes are tested after a news conference in 2010. At the time, there were allegations of unintended acceleration in the Prius, which Toyota denied. The allegations were never proven.
Denis Poroy AP

Toyota models that have been withdrawn for sale, identified by stickers on the windshield or by a single windshield wiper pointing skyward, when they were taken off sale for sticky accelerators, seen here at a storage lot for Keyes Toyota in the Van Nuys area of Los Angeles in 2010
Reed Saxon AP